Soon But Not Yet
The “Soon But Not Yet” part of fundraising refers to starting parallel conversations with VCs with the goal of qualifying investors, which means finding out whether they are interested in leading and/or participating in your financing round. Tactically, the key thing to do in this stage is to communicate to prospective investors that you are not yet fundraising.
This is When Things Get Tough
This is the hardest part of fundraising, because you are out there pitching, but don’t know if you will find believers. That means your leverage and confidence are at their lowest.
In those moments, it helps to remember that the real source of your leverage and confidence is not an investor saying yes. Instead, your power comes from the unique insights that have led to you starting your company, as well as your venture’s vision, potential, and traction. Recall the lessons learned in Fundraising Psychology and realize that you are building the next billion-dollar company and any investor would be lucky to choose to work with you.
That’s easier said than done of course. But those that internalize such thinking have a higher chance of actually building the next big thing.
And if you don’t or can’t see yourself in such a mindset, you should carefully reconsider whether you are a good fit for the VC asset class, as per Company / VC Fit.
You Are Not Fundraising Yet
Tactically, the key thing to do in this stage is to communicate to prospective investors that you are not yet fundraising.
That strikes most first-time founders as strange. After all, you are fundraising - why communicate otherwise? Are you trying to fool investors with such a positioning?
I assure you that no VC would ever be fooled. They play the game far more often than entrepreneurs and know exactly what such a positioning is meant to do: namely, serve as an opening hand in order to see which investors respond in kind and engage with you deeply and meaningfully. Out of those that follow up will (hopefully) emerge true believers that you end up partnering with over the next decade as you build your company.
Even though investors know you are posturing, there is still tremendous value to a “soon but not yet” type of messaging. The reasons are simple once you consider the unstated dynamics between founders and investors.
First, from a perception point of view, a founder that says they are fundraising must either have a term sheet already or be able to produce a term sheet pretty quickly (1-2 weeks). Otherwise, they are failing at fundraising in the sense that, if they were working on something exciting, investors should be clamoring to get in. If they are not, the startup and the founder must not be all that interesting. That sends a negative signal to would-be investors, which significantly diminishes the chances of a successful early-stage fundraise.
Second, from a substance point of view, you don’t want to ask for an investment from someone you barely know. Even if you did substantial research in the pre-qualification phase, that’s no substitute for engaging with someone directly. You want to assess whether they are a good fit for you and your company. Of course, that goes both ways: investors also want to have time to get to know you and your startup, and decide whether they want to partner with you.
Tactical Suggestions
It is common to communicate something along the lines of:
“We are not raising yet, but will be in 10-12 weeks. I am here to get to know you better because investing in early-stage startups is often a decade-long partnership, and I want to team up with the best possible partner that can make this company a success.”
Don’t think of this as a verbatim quote. Instead, this is a mindset that you must deeply internalize and communicate in your own authentic way.
Furthermore, don’t take “10-12 weeks” literally either. It is really likely that “Soon But Not Yet” will take up the majority of the 3 months allocated to Phase II - Fundraising. But believers can appear at any time, including on week 1 or week 15. You can’t really control that. You should keep going as long as you have a good pipeline and active conversations, until you are ready for The Switch.
Nonetheless, you should use a specific number and I do suggest that you keep it in the 10-12 week range. That’s not too soon, so it gives you enough time. Stating a range gives you wiggle room to take more time if you need it. And the number is in the foreseeable future, which makes your plan real and signals to investors that if they are interested they should engage now. By contrast, vague statements such as “some time next year” can mean anything from 3 to 12 months and are thus easier to ignore - investors will simply assume that you will circle back when you are actually fundraising.
Whatever specific language you choose, make sure to fully internalize it and communicate with confidence. You want to come across as someone who is fundamentally in charge of your startup’s financing strategy, including choosing the best possible investing partner.
In the following sections, I elaborate on the various tactical details of this phase.